“A Piper Jaffray analysis of global unlocked smartphone prices solidifies the firm’s expectation that Apple will launch a low-cost iPhone later this year, with the new handset purpose-built to compete in the untapped market estimated to be worth $135 billion in 2013,” Mikey Campbell reports for AppleInsider.

“Analyst Gene Munster on Tuesday reiterated his stance that Apple is likely to release a more affordable iPhone targeting developing regions like China and India,” Campbell reports. “‘We believe a lower priced iPhone will be a positive for AAPL shares for two reasons,’ he writes. ‘First, despite its lower margin, it should accelerate gross profit growth given the size of the low-end market (we estimate $135B in 2013); second, investors have historically bought into AAPL ahead of major new product releases.'”

Campbell reports, “He notes that the lowest priced iPhone, the iPhone 4, is still 133 percent more expensive than the global average for a low-end smartphone, suggesting Apple is only skimming the top of the market.”

It feeds upon itself. At some point the analysts begin baking these rumors into their models, and then when it doesn’t come true they sack Apple for not having produced the “rumored but we believed it” model/price. And if Apple does release it, that release was baked into their current share price evaluations — and so the impact of the lower margin device causes their future quarter modeling to come up with “declining margins.”

I don’t see Apple doing drastic steps in that way. The cheapest iPhone was about $400 for the last 2 generations, and before that $500 for 3 generations. So $300 could be their next step in 2013, and then $250 in 2014 or $200 in 2015. More important to their success in the low end will be to offer a unique new design, not just discounted old models.

Producing last years, or year before lasts, model and selling for less is not a long term strategy. Things change. My iP4 is a great phone, but things have changed. Antenna design, processor chipset, phone chipset, display technology, even the connector. Better to take a clean sheet with the latest tech features, but last years form factor and put the best phone you can into that space. No plastic, not a cheap phone, but a great phone at a lower price point. I’d be willing to bet there are plenty of first world buyers for that phone, in addition to emerging markets. Will it cannibalize the high end iPhone? Probably, like a BMW 3-Series cannibalizes the BMW 5-Series.